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CoRA Update: Guideline identifies who will and won’t be targeted

New draft guidelines have been prepared to assist in understanding the potentially onerous provisions of the Environmental Protection (Chain of Responsibility) Amendment Act (“CoRA”). The provisions of the CoRA were incorporated into the Environmental Protection Act on the 27thof April 2016. The CoRA gives the Department of Environment and Heritage Protection (“DEHP”) sweeping powers to make Environmental Protection Orders (“EPOs”) against a wide class of “related persons” of relevant companies for past and present environmental damage, particularly when the company has become insolvent. An EPO generally requires a person to take steps to remedy the environmental harm.

The CoRA was met with concern by managers, financiers and administrators in the natural resources sector, in particular because of its possible reach to companies and individuals tangentially involved in petroleum and mining activities. The DEHP released a Draft Statutory Guideline (“the Guideline”) on the 14thof November that clarifies, to some extent, how the DEHP will implement the CoRA. The Guideline clarifies how the DEHP will determine whether a person has a relevant connection with a company and when an EPO should be issued to a ‘related person’.

The Guideline makes it less likely that the new powers will extend to tangentially connected persons as feared such as small shareholders, banks providing loans in the normal course of business and administrators not directly involved in environmental activities. However, it is important to recognise that the DEHP’s powers under CoRA remain extensive.

Relevant connection

The DEHP may serve an EPO on a person with a ‘relevant connection’ with a relevant company that has caused environmental damage. A person may have a ‘relevant connection’ with a company when either the person can or has significantly benefited financially from the company’s activities or the person is or has been in a position to influence the company’s conduct in relation to the way it complies with its obligations under the CoRA.

Significant financial benefit

The Guideline provides that determining a ‘financial benefit’ will be a matter of fact (for example that a shareholding exists). The more complex issue will be whether the benefit is ‘significant’. ‘Significant’ is determined by reference to the proportion of the benefit relative to: the value derived from carrying out the relevant Environmental Authority (“EA”); or the costs of protecting, restoring or rehabilitating the environment.

The Guideline provides examples of what would and would not amount to a ‘significant financial benefit’. These include:

Determining who receives a ‘significant financial benefit’ and who is in a ‘position to influence’ remains highly discretionary and could include categories of persons who may not expect to be at risk.

Whether a related person should be issued with an EPO

The Guideline provides that the DEHP will only consider issuing an EPO to a ‘related person’ where a relevant company has avoided its environmental obligations. Further, the Guideline provides that it will not always be appropriate to pursue all ‘related persons’. Where there are multiple‘related persons’ the DEHP will consider the relative culpability of each person to determine who is most culpable. The Guideline also provides that if a culpable person took all ‘reasonable steps’ in the circumstances to prevent environmental harm the DEHP will not issue an EPO. Relevant factors the DEHP will consider in determining whether ‘reasonable steps’ were taken include:

the legal and practical ability to influence the company’s conduct;

the state of knowledge at the time, and in the lead up to, the incident;

reasonable reliance on others; and

the foreseeability and probability of the issue or incident occurring.

For example, the Guideline indicates that external administrators who exercise their powers and control in a manner which is permitted or required by the Corporations Act, the terms of their appointment or general law will not automatically be considered to have failed to take ‘reasonable steps’.

Future Action: Assessing the Guidelines

The Guideline should be considered by all involved in companies conducting activities which may impact on the environment and, in particular, should be considered by:

those with equity investments in relevant companies;

financiers to relevant companies;

those involved in any restructuring of relevant companies;

directors, executive offices and others in a position to control or influence decision making; and